Allen, Robert C. Farm to Factory: A Reinterpretation of the Soviet Industrial
Revolution. Princeton: Princeton University Press, 2003. xviii + 302 pp. $45.00.
ISBN 0-691-00696-2.
Bob Allen portrays “Farm to Factory” as the core process of Soviet economic
development: peasants became industrial employees. He argues that the Soviet record
of economic development up to the 1970s shows considerable strengths. Could any of
the alternative models of economic development that were available to Russia at the
time have done better? Allen suggests not. If the Soviet economic system was good
until the 1970s, whydid it fail in the 1980s? Allen’s answer is that the Soviet
economy failed because its strengths had become its weaknesses.
Allen’s first proposition rests on four comparisons. First, the growth of Soviet
productivity up to 1970 was right on the button by OECD standards. Second, even in
the 1930s, with Stalin’s dictatorship at its worst, aggregate output and consumption
improved by more than the established western measures have allowed; that those
who moved from farm to factory made substantial gains is not new, but Allen also
casts this trend in a more favourable light than before. Third, while the early 1930s
were a disaster for Soviet peasants, the agricultural system recovered quickly and its
long run performance was comparable with that of western agriculture in an
equivalent climatic zone. Fourth, educating Soviet women reduced fertility, slowed
population growth, and let incomes rise; despite some notorious episodes of
heightened mortality, death rates also fell markedly over the long run.
If the Soviet model was not so bad, was there some superior alternative? Allen
starts with Russia as a market economy. Russian incomes were growing at a
reasonable rate before 1914, but Allen argues that this performance was not
sustainable through the interwar period. It relied too much on the world market for
wheat; there was some industrialization but not enough; not enough of the income
growth trickled down to wages. Market-economy food exporters like Russia would
suffer badly in the Great Depression of the 1930s. Allen concludes that Russia could
not have grown at late nineteenth-century rates through the twentieth century.
If a market economy could not have improved on Soviet reality, were there
alternatives within a socialist framework? Allen simulates alternative accumulation
strategies in the 1930s. Starting from the historical givens of the Soviet economy in
1928, he calibrates a general-equilibrium model to “predict” the historical outcomes
year by year to 1939 subject to Stalin’s economic policy and the transformational
shocks of collectivization and a planned economy. Policy decided the proportion of
capital goods output reinvested in the capital goods sector. Collectivization replaced
the food market by compulsory procurements and caused large demographic and
capital losses. Planning imposed physical controls on industrial firms while softening
financial rules to let them employ more workers and produce more goods than profitmaximization would allow.
Allen uses this model to show what would have happened without
collectivization and “soft” budget constraints on industry. He calculates that by 1939
collectivization had made a net contribution that was positive but small: positive
because a vast migration from “farm to factory” raised average productivity as well as
consumption; small because large capital losses offset the gain. Taking into account
the millions of avoidable deaths he concludes that collectivization “added little to
growth and corrupted socialism” (p. 171).
Stalin’s bigger contribution, Allen suggests, was to subsidize industrial
employment through the soft budget constraint. This was economically rational, he
maintains, because too many labourers in agriculture had driven their marginal
product to zero. With wages above zero, profit-maximizing firms would not take up
the agricultural labour surplus. Allen concludes that industrial profit-maximization
would have restricted “farm to factory” movement and left output about 20 per cent
lower in every year through the 1930s. Given the small gains and large suffering
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associated with collectivization Allen concludes that state controls on industry with a
market relationship with peasant agriculture was the best development model.
The argument is clear and careful, but in my view Allen is critically wrong on the
soft budget constraint. He treats it as a mere payroll subsidy that resulted in a costless
efficiency improvement. In fact, its purpose and implications went far wider.
First, it grew out of the dictatorial relationship between the Bolshevik party and
the economy. The Soviet authorities suppressed profit-maximization and allowed soft
budget constraints not to improve economic efficiency but to build a command
economy and direct resources by decree.
Second, Allen argues that in the 1930s the best model comprised soft budget
constraints in industry and no collectivization. Peasant farms could have released
their surplus labour to industry without loss of output while the remaining farmers
would willingly have sold the food to feed them through the market. However, we
don’t need to speculate about what might have happened in the 1930s under these
arrangements. We just have to look at what actually happened in the late 1920s.
Budget constraints in industry were already becoming soft. The resulting shortages
left peasants with few industrial goods to buy. With little to buy, they cut back food
sales. Under these conditions price adjustment didn’t work; offering higher prices for
food just let the peasants buy the limited quantities of industrial goods available for
even lower food sales. That left Stalin with two choices: harden budget constraints
and let go of industry, or bring the peasantry under his control as well. He didn’t have
the option to go into the 1930s with controls on industry and a free market for food.
Third, the soft budget constraint was not just a subsidy for employment but
reflected a more far-reaching willingness to tolerate inefficient behaviour generally. It
did permit higher employment and output in the short run. But by eliminating the
automatic punishment of inefficiency it also created incentives that were highly
adverse for effort, allocation, and technology. Stalin’s circle did not intend these
consequences. They wanted Soviet firms to keep employment and other costs low,
raise productivity, and make profits. They just did not want this enough. They wanted
a command system more. To get one, they had to let budget constraints become soft.
The result was that the rewards for productive effort and initiative in the Soviet
economy faced an unequal competition with the gains from lying, cheating, shirking,
and stealing.
This does not mean that some alternative was better. I sympathize with the view
that Russia would have fared badly as a market-oriented food exporter in the interwar
slump or the war that followed. The trouble is that Allen’s analysis conveys no sense
of the real price Russia is paying today for six decades of Stalinist planning, which
temporarily boosted production and employment but did terrible damage to economic
and civic institutions. Allen suggests that if Russia had made it through the twentieth
century as a food-exporting market economy it would have remained relatively poor.
But having emerged from communism Russia is poor anyway: according to Angus
Maddison average real incomes across the former Soviet Union were only two thirds
of the Latin American average in 1998, compared with rough parity in 1914.
The final part of Allen’s argument concerns what went wrong in the long run.
The Soviet economy was datestamped “best before 1970”. The problem is why, if
everything was so good until then, it turned out so badly after that. Allen suggests that
once the “farm to factory” movement was complete, the strengths of the Soviet
economy became its weaknesses. The soft budget constraint stopped industry from
adapting to labour shortage and rising energy costs. Centralized plans focused on
raising energy production rather than cutting consumption. Many have seen this as an
era in which plans became increasingly ineffective. Allen’s view is the contrary: “the
plans were implemented; the problem was that they did not make sense” (page 211).
As misallocation worsened the economy stopped growing. There is a lot of careful
analysis and interesting data about investment allocation.
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To support his diagnosis Allen must downplay the role of incentives. He suggests
that collective agriculture was “not inimical to productivity growth” (page 174); in
industry the “disincentives to innovate may not have been as strong as usually
believed” (page 208); in general the Soviet economy declined not because of
“incentive problems” but because of “a failure of imagination at the top” (page 211). I
will need more persuading, however.
This fascinating book contributes to the long tradition of seeking a transferable
“development model” for poor countries in Soviet historical experience (page 4). The
problem is that this model is historically inseparable from dictatorship.
Mark Harrison
University of Warwick